Toronto-based global manufacturing stock CCL Industries plans to split its common shares five-for-one. This is a plus for individual investors. 100 shares now cost about $30,000. After the split, that board lot would fall to a more affordable $6,000. This is likely to further raise the share price.

Shares of CCL Industries (TSX—CCL.B) have climbed substantially since September. They remain a buy for further long-term share price gains as well as small, but growing dividends.

CCL describes itself as “a world leader in specialty label and packaging solutions for global corporations, government institutions, small businesses and consumers”. The word ‘global’ is appropriate. That’s because the company operates 146 production facilities in 35 countries on all six continents.

CCL’s geographical diversification reduces its exposure to economic conditions in any one country. In the short run, however, the relatively strong Canadian dollar is reducing the value of some of its foreign earnings. The British pound and the Mexican peso, in particular, have plunged. President and chief executive officer Geoffrey Martin said: “At today’s Canadian dollar exchange rates, currency translation would remain a modest headwind for the first quarter of 2017, if sustained.”

In 2016, CCL earned $399 million, or $11.41 a share, excluding one-time items in both years. This was up by an outstanding 32.5 per cent from earnings of $299 million, or $8.61 a share, the year before.

Earnings reflect aggressive acquisition program

CCL’s higher earnings largely reflect the contribution from eight acquisitions it closed last year. It also closed its $1.13 billion acquisition of Innovia Group in the first quarter of 2017. This and a full year’s contribution from last year’s acquisitions should raise CCL’s earnings in 2017. It’s also entering the Indian market.

In 2017, we expect CCL to earn $14 a share. Based on this estimate, its shares trade at a price-to-earnings ratio of about 20 times. This seems reasonable, given the company’s fast earnings per share growth. In 2016, we calculate that CCL’s cash flow jumped by over 22 per cent, to $580 million. This confirms its higher earnings. The cash flow exceeded its dividend payments and net capital investment. But the company had to borrow to pay for the acquisitions.

CCL is a ‘dividend aristocrat’. It has raised its dividend for many years in a row. Mr. Martin said: “Given the Company’s strong financial performance in 2016, outlook and expected strong free cash flow for 2017, the Board of Directors declared a 15 per cent increase in the dividend.” It now pays $2.30 a share. Even so, the shares yield just 0.85 per cent. The reason CCL’s yield is so small is because the shares are up sharply. These past five years, the shares have delivered a return of about 400 per cent.

CCL Industries remains a buy for further long-term share price gains as well as small, but growing dividends.

This is an edited version of an article that was originally published for subscribers in the March 2017/First Report of The MoneyLetter. You can profit from the award-winning advice subscribers receive regularly in The MoneyLetter.